M/s Intelsat Corporation, New Delhi V. DCIT (Intl. Taxation), New Delhi

ITA 5534/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2323 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 27-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; TDS
• Section: 11A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , DELHI C BENCH , NEW D ELHI BEFORE SHRI R.K. PANDA ACCOUNTANT MEMB E R AND SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER ITA NO. 5534 /DEL /201 6 [ ASSESSMENT YEAR: 20 13 - 14 ] INTELSAT CORPORATION VS. THE D.C.I.T. C/O PRICEWATERHOUSECOOPERS (P) LTD INTL. TAXATION SUCHETA BHAWAN, GATE NO. 2 CIRCLE 2(1)(1) 1 ST FLOOR, 11A VISHNU DIGAMBER MARG NEW DELHI NEW DELHI PAN : AADCP 6533 D [APPELLANT] [RESPONDENT] DATE OF HEARING : 12.06.2019 DATE OF PRONOUNCEMENT : 20 .06.2019 ASSESSEE BY : SHRI RISHAB MALHOTRA, SHRI RAVI SHARMA, ADV REVENUE BY : SHRI G.K. DHALL, CIT - DR ORDER PER SUD H ANSHU SRIVASTAVA, JM: - THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE DRP - 1 , NEW DELHI DATED 26 / 08 /201 6 PERTAINING TO A.Y. 20 13 - 14 . 2 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISPUTE RESOLUTION PANEL (THE PANEL) ERRED IN NOT DIRECTING THE LD. AO TO PASS ORDERS HOLDING THAT THE APPELLANT IS NOT LIABLE TO BE ASSESSED TO TAX IN INDIA. 1.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE PANEL ERRED IN NOT DIRECTING THE LD. AO TO FOLLOW THE ORDERS PASSED BY THE HONBLE HIGH COURT OF DELHI IN THE APPELLANT'S OWN CASE FOR THE AYS 2006 - 07 TO 2008 - 09 WHICH DISMISSE D THE APPEALS FILED BY THE REVENUE DEPARTMENT AGAINST THE FAVOURABLE ORDERS OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI (THE TRIBUNAL). 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PANEL AND THE LD. AO ERRED IN HOLDIN G THAT THE RECEIPTS EARNED BY THE APPELLANT FALL WITHIN THE NATURE OF 'ROYALTIES' WITHIN THE AMBIT OF EXPLANATION 2 TO SECTION 9(I)(VI) OF THE INCOME - TAX ACT, 1961 (THE ACT) AND ARTICLE 12(3) OF THE INDIA - USA DOUBLE TAXATION AVOIDANCE AGREEMENT (THE DTA A). 2.1 THAT WITHOUT PREJUDICE TO THE ABOVE, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PANEL AND THE LD. AO ERRED IN NOT APPRECIATING, THAT APPELLANT, BEING A RESIDENT OF USA, IS COVERED BY THE PROVISIONS OF DTAA AND ACCORDINGLY, COULD NOT BE TAXED UNDER THE PROVISIONS OF THE ACT. 3 2.2 THAT WITHOUT PREJUDICE TO THE ABOVE, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE PANEL AND THE LD. AO ERRED IN READING INTO THE EXPANDED MEANING OF ROYALTIES CONTAINED IN SECTION 9(I)(VI) OF THE A CT AS RETROSPECTIVELY AMENDED BY FINANCE ACT, 2012, FOR THE PURPOSE OF INTERPRETING THE DEFINITION OF 'ROYALTIES' AS PROVIDED UNDER ARTICLE 12(3) OF THE INDIA - USA DTAA, WHEN IT IS A SETTLED POSITION IN LAW THAT AMENDMENT IN ACT CANNOT HAVE ANY EFFECT FOR T HE PURPOSE OF INTERPRETATION OF DTAA. 3. THAT WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE PANEL AND LD. AO ERRED IN HOLDING THAT THE REVENUES EARNED FROM NON - RESIDENT CUSTOMERS OF THE APPELLANT AR E ALSO CHARGEABLE TO TAX IN INDIA AS PER THE PROVISIONS OF SECTION 9(I)(VI)(C) OF THE ACT AND ARTICLE 12(7) OF THE INDIA - USA DTAA. 4. THAT WITHOUT PREJUDICE TO THE ABOVE, THE PANEL AND LD. AO ERRED IN CATEGORIZING THE REVENUES EARNED FROM NON - RESIDENT CUSTOMERS OF THE APPELLANT INTO THREE CATEGORIES WITHOUT GIVING A REASONABLE BASIS AND ACCORDINGLY, TAXING 90 PERCENT, 50 PERCENT AND 5 PERCENT OF THE REVENUE FROM SUCH NON - RESIDENT CUSTOMERS. 5. THE LD. AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT, BY NOT APPRECIATING THE FACT THAT THE APPELLANT IS NOT UNDER ANY OBLIGATION TO PAY ADVANCE TAX IN INDIA, SINCE THE APPELLANT IS NOT LIABLE TO TAX IN INDIA. 4 6. THAT THE LD. AO ER RED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 ( 1 )( C) OF THE ACT. 3. AT THE VERY OUTSET, THE LD. AR STATED THAT THE ISSUE S RAISED IN THIS APPEAL ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 201 2 - 1 3 . 4. THE LD. DR COU LD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN T HE CONTENTION OF THE LD. AR. I DENTICAL ISSUE S W ERE CONSIDERED BY THE CO - ORDINATE BENCH IN ITA NO. 236/DEL/2016 . THE RELEVANT FACTS AND FINDINGS OF THE CO - ORDINATE BENCH READ AS UNDER: 2. BRIEF FACTS OF THE CASE ARE THAT THE INTELSAT CORPORATION (IC)(ASSESSEE) IS A TAX RESIDENT OF USA WITH ITS REGISTERED OFFICE IN WASHINGTON. ASSESSEE QUALIFIES AS A TAX RESIDENT OF USA IN TERMS OF ARTICLE 4 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) AND THE PROVISIONS OF SUCH DTAA ARE APPLICABLE TO THE CASE OF THE ASSESSE E. 5 3. ASSESSEE IS THE OWNER AND OPERATOR OF GLOBAL NETWORK OF TELECOMMUNICATION SATELLITES LOCATED IN OUTER SPACE AND IS ENGAGED IN ACTIVE BUSINESS OF TRANSMITTING TELECOMMUNICATION SIGNALS TO/FROM ITS CUSTOMERS AND VARIOUS TV CHANNELS, NICNET AND INTERNET SERVICE PROVIDERS ARE USING THE SATELLITES FOR VARIOUS PURPOSES INCLUDING TELECOMMUNICATION, BROADCASTING ETC; THAT FOR SUCH PURPOSE THE ASSESSEE ENTERS INTO CONTRACT WITH VARIOUS PARTIES AROUND THE WORLD; AND THAT DURING THE FY 2011 - 12, THE ASSESSEE LEAS ED OUT THE TRANSPONDERS/BANDWIDTH TO VARIOUS CUSTOMERS IN INDIA AND CUSTOMERS OUTSIDE INDIA, WHO ARE USING THE TRANSPONDER FOR THEIR BUSINESS IN INDIA AND THEY AS A PART OF THEIR BUSINESS, THE ASSESSEE PROVIDED CAPACITY ON ITS EXISTING SATELLITES IN ORDER TO ENABLE THE CUSTOMERS TO UPLOAD AND DOWNLOAD INFORMATION. FOR THE AY 2012 - 13, THE ASSESSEE FILED THEIR RETURN OF INCOME ON 28.9.2012 DECLARING AN INCOME OF RS.18,24,926/ - AND CLAIMING A REFUND ON ACCOUNT OF CLAIM OF TDS AMOUNTING TO RS.65,90,960/ - . 4. LE ARNED AO AFTER RECORDING THE ASSESSMENT HISTORY OF THE ASSESSEE FROM AY 1996 - 97 TO 2011 - 12 AND ALSO WHILE REFERRING TO THE PROVISIONS OF OECD COMMENTARY ON ARTICLE 12 AND ALSO THE DECISION OF PANAM SAT INT ERNATIONAL SYSTEMS INC.(7 INTL. TAX LAW REPORT 419) HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FROM THE PROVISION OF SATELLITE TRANSMISSION SERVICES TO ITS CUSTOMERS FALL UNDER THE ROYALTY DEFINITION AS GIVEN IN SECTION 9(1)(VI) OF THE ACT AND ARTICLE 12 OF THE INDIA USA TAX TREATY AND HENCE TAXABLE IN INDIA AND ACCORDINGLY FOUND THAT INCOMES OF THE ASSESSEE ARE TAXABLE AS ROYALTY BOTH UNDER THE A CT AND THE DTAA AFTER INSERTION OF RETROSPECTIVE CLARIFICATORY EXPLANATIONS 6 TO SECTION 9(1)(VI) OF THE ACT. HE ALSO RECORDED A FINDING THAT SINCE THE DEPARTMENT HAD NOT ACCEPTED THE ORDER OF THE HON'BLE HI GH COURT IN THE CASE OF ASIA SATELLITE , 332 ITR 340 (DEL), HELD THAT THE PAYMENTS RECEIVED BY THE ASSESSEE ARE TAXABLE IN INDIA AS ROYALTY BOTH AS PER THE PROVISIONS OF THE ACT AS WELL AS THE TAX TREATY AND AT THE SAME TIME PAYMENTS MADE BY WAY OF NON RES IDENT WERE ALSO CONSIDERED AS DEEMED TO ACCRUE OR ARISE IN INDIA AS PER THE PROVISIONS OF SECTION 9(1)(VI)(C) OF THE ACT AND ARTICLE 12(7)(B) OF THE TAX T REATY AND ARE TAXABLE @ 10% OF THE GROSS AMOUNT. ON THIS PREMISE, LEARNED AO SUMMARIZED THE FOLLOWING AMOUNTS TO TAX: PARTICULARS TOTAL REVENUE ATTRIBUTED REVENUE TAX (RS.) (RS.) (RS.) INDIAN CUSTOMERS 75,61,01,260/ - 75,61,01,260/ - 7,56,10,126/ - (100%) GLOBAL CUSTOMERS 12,36,83,972/ - 11,13,15,575/ - 1,11,31,557/ - (ATTRIBUTION @ 90%) GLOBAL CUSTOMERS 6,44.62,617/ - 3,22,31,309/ - 32,23, 131/ - (ATTRIBUTION @ 50%) GLOBAL CUSTOMERS 26,94,69,086/ - 1,34,73,454/ - 13,47,345/ - (ATTRIBUTION @ 5%) TOTAL INCOME 1,21,37,16,936/ - 91,31,21,598/ - 9,13.12,160/ - ATTRIBUTED 5. AFTER THE LEARNED DRP PASSED THE DI RECTIONS DATED 18.12.2015, LEARNED AO BROUGHT THE AMOUNT OF RS.91.31,21,598/ - TO TAX AND ALSO CHARGED INTEREST AS PER LAW BY GIVING CREDIT OF PREPAID TAXES. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING THE TAXABILITY OF THE RECEIPTS U/S 9(1)(VI)( C) OF THE INDO US DTAA. 7 6. AT THE OUTSET, IT IS BROUGHT TO OUR NOTICE BY THE LEARNED AR THAT IN ASSESSEE'S OWN CASE FOR THE AYS 2005 - 06 AND 2009 - 10 TO 2011 - 12 IN ITA NOS.2234/DEL/2009, 6041/DEL/2012, 451 & 6312/DEL/2014, AFTER CONSIDERING THE CIRCUMSTANCES AND CONTENTIONS OF THE PARTIES, A COORDINATE BENCH OF THIS TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL FOLLOWED THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASIA SATELLITES (SUPRA) AND DIT VS NEW SKIES SATELL ITE BV, 382 ITR 114 (DEL). LEARNED AR FURTHER SUBMITTED THAT SINCE THERE IS NO CHANGE IN THE FUNDAMENTAL FACTS PERMEATING ALL THESE YEARS INCLUDING THE ASSTT. YEAR 2012 - 13, THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL BAS WELL AS THE HON'BLE HIGH COURT HAS TO BE FOLLOWED AND THE ISSUE HAS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE. 7. LEARNED DR PLACED HEAVY RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE ARGUMENTS ADVANCED IN THE ABOVE BATCH OF APPEALS AS COULD BE CULLED OUT FROM PARA 10 OF T HE SAID ORDER. IN VIEW OF THE SIMILARITY OF THE FACTS AND THE NATURE OF ARGUMENTS, WE DO NOT DEEM IT NECESSARY TO REITERATE ALL THE CONTENTIONS OF THE PARTIES HERE AGAIN. 8. IT COULD BE SEEN FROM THE ORDER DATED 26.2.2018 IN ITA NO.2234/DEL/2009 AND BATCH, THE CONTENTION OF THE ASSESSEE IS THAT THE IMPUGNED RECEIPTS CANNOT BE HELD TO BE ROYALTY AND CONSEQUENTLY CANNOT BE BROUGHT TO TAX IN INDIA, SO UPHELD BY A COORDINATE BENCH OF THIS TRIBUNAL WHILE REFERRING TO THE DECISIONS OF THE HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF ASIA SATELLITE (SUPRA) AND NEW SKIES SATELLITE BV (SUPRA). IT IS NOT THE CASE OF THE REVENUE THAT ANY CHANGE OF FUNDAMENTAL FACTS 8 HAPPENED FOR THESE ASSESSMENT YEAR SO AS TO DISTINGUISH THE SAME FROM THOSE OF THE EARLIER YEARS. 9. IN THE CASE OF ASIA SATELLITES (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 28.9.2012 UPHELD THE CONTENTION OF THE ASSESSEE AND EVEN SUBSEQUENT TO THE AMENDMENT OF SECTION 9(1)(VI) BY TH E FINANCE ACT , 2012 WITH RETROSPECTIVE EFFECT BY WAY OF FINANCE ACT , 2012, WHEN THE REVENUE FILED THE REVIEW PETITION, THE HON'BLE HIGH COURT DISMISSED THE REVIEW PETITION ALSO. FURTHER, POST RETROSPECTIVE AMENDMENT BY WAY OF FINANCE ACT , 2012 IN SECTION 9(1)(VI) IN THE CASE OF NEW SKIES SATELLITE BV, THE HON'BLE JURISDICTIONAL HIGH COURT HELD THAT THE CONDITION WITH RESPECT TO TAXABILITY OF SATELLITE TRANSMISSION SERVICES IN INDIA WOULD REMAIN THE SAME FOR THE DTAA AND AMENDMENT TO THE ACT WITH A RETROSPECTIVE OR PROSPECTIVE CANNOT BE READ IN A MANNER SO AS TO EXTEND THE OPERATION TO THE TERMS OF INTERNATIONAL TREATY. 10. IT IS, THEREFORE, CLEAR THAT THE ISSUE INVOLVED IN THIS APPEAL REMAINS SQUARELY COVERED BY THE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT. WHEN THE ISSUE NO LONGER REMAINS RES INT EGRA AND THERE IS NO CHANGE IN THE FUNDAMENTAL FACTS PERMEATING ALL THESE YEARS, WE ARE OF THE CONSIDERED OPINION, THERE WOULD BE NO JUSTIFICATION TO TAKE A DIFFERENT VIEW FROM THE CONSISTENT VIEW TAKEN FOR THE EARLIER YEARS. WE, THEREFORE, WHILE RESPECTFU LLY FOLLOWING THE ABOVE LINES OF DECISIONS, HELD THE ISSUE IN FAVOUR OF THE ASSESSEE AND ANSWER THE ISSUE STATING THAT THE INCOME RECEIVED BY THE ASSESSEE CANNOT BE TAXED AS ROYALTY IN INDIA. NEEDLESS TO SAY, THAT THE QUESTION OF INTEREST IS ONLY CONSEQUEN TIAL IN NATURE. 9 6. AGGRIEVED BY THIS ORDER OF THE TRIBUNAL, THE REVENUE WENT IN FURTHER APPEAL BEFORE THE HON'BLE HIGH COURT OF DELHI. THE HON'BLE HIGH COURT, VIDE ORDER DATED 10.04.2019, RELYING ON THE JUDGMENT IN THE CASE OF GE PACKAGED POWER INC 373 I TR 65, CONFIRMED THE ORDER OF THE TRIBUNAL. 7. ACCORDINGLY, R ESPECTFULLY FOLLOWING THE FINDINGS OF THE CO - ORDINATE BENCH AND THE HON'BLE HIGH COURT , WE ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED . ORDER PRONOUNCE D IN THE OPEN COURT ON 2 0 .0 6 .201 9 . S D / - SD/ - (R.K. PANDA) ( SUDHANSHU SRIVASTAVA ) ACCOUNTANT MEMB E R JUDICIAL MEMBER DATED: 2 0 . 0 6 .201 9 V L COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT (APPEALS) 5) DR: ITAT ASSISTANT REGISTRAR 10 NEW DELHI DATE DRAFT DICTATED ON DRAFT PLACED BEFORE AUTHOR DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.